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Commercial Term Loan Cut Back on ICR? Bridging the Gap Until Income Supports Full Size

Commercial Term Loan Cut Back on ICR? Bridging the Gap Until Income Supports Full SizePhoto by Constantin Hyp on Unsplash

You are mid-application, not at the start. The pack is in with a UK bank. Then credit returns a sanction that does not meet the figure you asked for.

The building itself can be sound. Passing rent is lumpy, a lease is short, or one tenant carries too much of the income. At a stressed rate the ICR fails, so the commercial term loan is cut back.

You now have a gap against the purchase price or the facility you need to repay. That gap is the problem most borrowers in this position are trying to solve.

Why the sanctioned amount lands below the application figure

Banks do not underwrite the rent you collect this quarter. They underwrite cover at a stressed interest rate, against a conservative view of tenant quality, unexpired term and voids. A building that services the loan at today's coupon can still fail ICR once that stress is applied.

The Bank of England Bank Rate is the reference many credit policies start from. Lenders then add a buffer. If passing rent is stepped, a break is near, or one tenant dominates, the model cuts the loan, not the interest rate.

That is why you can go in with a clean title and still be offered less than you need. The committee is protecting cover, not rejecting the asset.

What the application pack has to prove

Credit will not move on a brochure. The pack has to show income that survives stress, and an asset the bank can take a first charge over.

Typical items:

  • Tenancy schedule, rent-free periods, breaks and arrears
  • Tenant covenant and accounts, not just the name on the lease
  • Unexpired term and any planned regear or rent review
  • EPC rating, and a path if the certificate is weak
  • Report on Title, existing charges and planning
  • Filed SPV accounts, KYC and source of funds

A Decision in Principle is not a committed facility. Until valuation, legal due diligence and credit are complete, the number can still move.

If the completion date is close, speak to our team while the pack is still in flight.

Funding the whole position with a first-charge bridge

A commercial bridging loan is not a substitute for the term loan you applied for. It is a timed first-charge facility against the same asset, sized on value and a documented exit, while income is repaired.

The bridge funds the purchase or refinances the outgoing lender in full, takes the first charge, and is repaid in full by the term loan once ICR supports the size you originally asked for.

Rikvin Capital is a direct private lender in the UK. We lend mainly to property investors, high-net-worth individuals and corporates, against the asset and the exit, not against personal income. We are not a bank.

Indicative terms run £1M – £100M, up to 75% LTV, tenor 3–24 months. A term sheet can be issued in 24 hours, with drawdown typically in about two weeks, subject to valuation and due diligence.

The work in that window is specific. Conclude the rent review, regear the lease, let the vacant floor, or season the new tenant so the bank can re-run ICR at full size. Lending on part-let or short-lease commercial property is considered case by case, subject to terms.

Rolled-up interest is common, so cash-flow strain during the works can stay limited. Funds follow the lending process: valuation, title and the exit.

Industrial warehouse exterior as UK commercial property security
A first-charge facility holds the gap while a letting or regear repairs cover. · Photo by Esphera ArqEng on Unsplash

When a bridge is the right tool, and when it is not

A bridge is the right tool when three things are true:

  • The term-loan lender is still in the file
  • The income repair has a date you can evidence
  • The asset supports a first charge at a sensible LTV

Related: bridging finance for a London investment property.

It is the wrong tool when vacancy is structural, the tenant will not regear, or no bank will re-run the case. It is also wrong if you need ten-year money now and have no path off a 3–24 month tenor.

Bridging costs more than the term loan you applied for. That extra cost only makes sense if it protects a completion date or a refinance that would otherwise fail. On a purchase the gap is wider than the loan cut: Stamp Duty Land Tax still falls due in full.

The main risk sits in the same place. If income does not lift, the term loan still will not size, and you must refinance or sell inside the tenor.

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Frequently asked questions

A reduced sanction is a sizing outcome, not always a closed door. Ask the bank which ICR and stressed rate they used, then evidence the rent review, regear or letting that lifts cover. A short-term first-charge facility can fund the whole position in the meantime. Terms are indicative and subject to valuation.
Not in itself. Structure it as a first-charge bridge with the term loan as the exit. The bank will expect to repay the bridge in full on its own drawdown, so it takes clean security. Tell both lenders the sequence at the outset. This is not legal advice; your solicitor should settle priorities and notices.
Indicative tenor is 3–24 months, and it has to match a dated event the term lender will accept: a rent review, a lease regear, a letting or a seasoning period. If that event cannot land inside the term, a bridge is the wrong instrument. Drawdown is typically about two weeks, subject to due diligence.
Our borrowers are typically property investors, high-net-worth individuals and corporates, and we lend on first-charge commercial security. Indicative LTV is up to 75%, loan size £1M – £100M, with a term sheet in 24 hours. We lend against the asset and the documented exit, not personal income. Nothing is approved until valuation and due diligence are complete.
Then the clock is the expiry date, not the purchase. A bridge can repay the outgoing lender in full, sit in first charge, and wait for the new term loan once ICR is repaired. That only works where the refinance is evidenced. If the existing lender is calling the loan with no term lender in sight, this is a harder credit. Take a first-charge bridge only where the same term loan can be re-run at full size once the income is actually there.
Article sources2

Rikvin Capital cites primary, authoritative sources to support the information in our articles. The references below link directly to the original material.

  1. Co. The Bank of England Bank Rate
  2. GOV.UK. Stamp Duty Land Tax

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